Ask GFC 011 – Rebuilding Your Finances After Identity Theft

Identity theft is a certifiable financial disaster. When it strikes, it affects virtually every corner of your financial existence, which of course spills over to your personal life. We received a comment and several questions from someone who has experienced this nightmare firsthand:

“My name is Marlon and I’m currently attending college. I’m 30 yrs. old with 2 kids, so let’s start with I’m an Identity theft victim. I haven’t had a bank account due to fraud committed with banks and chex system. Recently I disputed and showed proof those accounts weren’t mine, with legal documents. Now chex system has cleared my name and record. But now I have been working on my credit score, calling places, showing proof, and some don’t believe me and don’t help. Others help once the requested paperwork is provided.

Now my questions:

1. Now that I can open and have a bank account, should I open one and if so, what kind?
2. I want to start something for the kids while they are young that would benefit them in the long run financially (ira, cd, bonds, 401k,etc.).
3. How can I improve my credit score? I have contacted all 3 credit companies but most work is done by me, sad to say.
4 What can I do about those creditors that refuse to accept it was a fraud account and refuse to remove it from my credit report? I have a police report.
5. I’m at the age where I want to own my place; I currently rent and it’s hard for me do to the ID theft – any advice?

Well, that’s all bro, hope all’s well and thanks for your time and advice.

–Marlon”

Marlon asks a series of questions, which goes to prove how deep into your financial life identity theft and cut. I’m not credit expert by any means, but I’ll try to address each of his questions from a financial standpoint.

1. What Type of Bank Account to Open

Marlon asked, “Now that I can open and have a bank account, should I open one and if so, what kind?”

To the first part of the question – YES(!), you absolutely should and must open and have a bank account. To not have one robs you of the ability to transact business in the usual ways that it happens. In addition, not having a bank account is giving the identity thief power over your life. Opening a bank account is a way to strike back and say I’m in control over my own life, and over my own financial affairs.

The alternative is to rely on check cashing services or on the goodwill of other people to help you with your banking needs. That will not only restrict your financial activities, but it is also very expensive (the check-cashing services, at least).

So yes to opening a bank account. As to what kind? Any kind you want!

You’re not permanently damaged goods just because you were the victim of identity theft. You can open a bank account anywhere that you want, and any type of account that you choose. It can be a checking account, a savings account, or a money market account. You can choose a bank or credit union. It can be a large bank, or a small bank. Just choose one, and go forward with confidence.

At the same time, I fully understand your reluctance to open up a bank account because of what happened to you with the identity theft. But you can reduce the chance of becoming a victim a second time around by setting up online banking. Once you do, you can check your activity on a regular basis. This means that you will be able to catch identity theft very early in the process.

My recommendation is that you open up both a checking and savings account, set them up with online banking, and then monitor them daily.

2. Saving for the Kids

Marlon should start saving money for his kids for all of the same reasons that he should open up a bank account for himself. Though he mentions IRAs, Roth IRAs, and 401(k) programs, none of these will be suitable. In order to participate in those plans, his kids will need an income. If they don’t have it, they will be ineligible.

He does mention CDs – certificates of deposit – and bonds. He can look into US Savings Bonds, which he can purchase for as little as $25.

He can also begin investing in CDs for them through a bank account. He can do this under the Uniform Gift to Minors Act (UGMA), which is simply a process that you can set up at the bank, putting the account in your child’s name. The advantage of any of these methods is that the money can be withdrawn for virtually any purpose.

If you want savings specifically for college, then a 529 Plan is probably the best way to go. You can save up to $14,000 per child per year (actually more, but it gets complicated). There is no tax deduction for contributions to the plan, but investment income is earned tax-deferred. Money can be withdrawn tax-free as long as it is used to pay for qualified education expenses, such as tuition and room and board.

3. Improve Credit Scores with All 3 Credit Bureaus

There’s no easy answer when it comes to improving your credit scores. Marlon writes: “I have contacted all 3 credit companies but most work is done by me, sad to say.” Unfortunately, that’s exactly how it works with the credit bureaus. You’re guilty until proven innocent when it comes to credit, and the burden of proving that is on you.

No matter how much information you supply to the credit bureaus, they will continue to rely on what’s reported to them by the individual creditors. That means that in order to improve your credit score, you have to make your case with each creditor.

You should provide a letter of explanation, and include a copy of the police report and any other documents that support your claim of identity theft. This is a long slow process, and you have to dig in and be prepared to work through it.

Fortunately, time heals all when it comes to credit problems. Since most credit problems will fall off of your credit report after seven years, eventually the mess will disappear. Otherwise you have to fight your way through to clear your name with each and every creditor.

4. Dealing with Creditors Who Refuse to Remove Fraud-Related Credit

This is not an uncommon problem! There are actually two victims when it comes to identity theft. In this case, the first victim is Marlon, but the second victim is the creditors. After all, money was drawn on those accounts illegally, and the creditors have sustained financial losses as a result. Despite the fact that it was not Marlon’s fault, some creditors may still attempt to collect the losses from him.

The only way to get around this problem is to hire an attorney. It should be an attorney who specializes in credit law. Naturally, this will cost money. But if the creditors are hounding you for large amounts of money, the fee paid to the attorney may be money well spent to get rid of the implied liabilities. Just be aware that in extreme cases, the attorney may recommend that you file for bankruptcy, which will legally wipe away all of debts.

5. Buying a Home With Badly Damaged Credit

This is one area where Marlon may get a break. If at least a couple of years have passed since the identity theft, you may be able to get an FHA insured mortgage to buy a house. FHA will generally grant mortgages if your credit problems were caused by extenuating circumstance. The identity theft certainly qualifies as such a circumstance.

This is where Marlon’s police report and other documentation will be especially important. In order to get the mortgage, Marlon will have to provide documentation proving the identity theft. It sounds like he already has that documentation, particularly the police report.

You also have to find a mortgage lender who is willing to work with you. Many mortgage lenders today are gun-shy about granting mortgages to people with credit problems, regardless of the cause. But there are lenders who will work with you, and you have to find out who they are in your area. Checking with local real estate agents, or a credit attorney, will be a good place to start.

Marlon’s in a difficult position, no matter what he does. But with patience and persistence, he’ll eventually get to a better place with his finances. Keep going forward Marlon, and don’t let the bad guys win!

"Rose is particularly good in explaining how to establish and keep good credit; the need for having clear, specific financial goals; how to learn from your mistakes when you go off track; and the best ways to eliminate debt."
-New York Times

Alliance Wealth Management, LLC (“Alliance”) is a registered investment adviser offering advisory services in the State(s) of Illinois and in other jurisdictions where exempted. Registration does not imply a certain level of skill or training. The presence of this website on the Internet shall not be directly or indirectly interpreted as a solicitation of investment advisory services to persons of another jurisdiction unless otherwise permitted by statute. Follow-up or individualized responses to consumers in a particular state by Alliance in the rendering of personalized investment advice for compensation shall not be made without our first complying with jurisdiction requirements or pursuant an applicable state exemption.

All written content on this site is for information purposes only. Opinions expressed herein are solely those of AWM, unless otherwise specifically cited. Material presented is believed to be from reliable sources and no representations are made by our firm as to another parties’ informational accuracy or completeness. All information or ideas provided should be discussed in detail with an advisor, accountant or legal counsel prior to implementation.